Warehousing in Canada Under Common Law and Civil Law

While warehousing is a significant part of the supply chain throughout Canada, a warehouser’s rights and obligations vary according to whether its activities are governed by the common law and by provincial legislation in force in common law provinces, or by the civil law system in the province of Québec. A comparison of these legal frameworks should be of interest to warehousers and to other actors in the supply chain.

Bailment and Warehousing in Common Law Provinces

At common law, a bailment arises when a person (the bailor) delivers goods to another person (the bailee) with the understanding that the goods will be returned, in either their original or an agreed upon form, when the time or use for which they were bailed elapses or is performed.  Bailments are often based on the terms of an express or implied contract, but a contract is not required for a bailment to exist. The bailor has a cause of action (whether for breach of contract or for negligence) when the bailee fails to return the goods to the bailor. If the bailment is for reward, the bailee is measured against the standard of care that a careful and vigilant owner of similar goods would exercise in similar circumstances.  Traditionally, a gratuitous bailee was held to a lower standard of care than a bailee for reward, but recently courts have put less emphasis on this distinction.  Once it is established that goods were lost or damaged in the bailee’s possession, the onus is on the bailee to demonstrate that it met the requisite standard of care.

In the warehousing context, each of the common law provinces, except Prince Edward Island and Saskatchewan, has enacted legislation relating to warehouse receipts and the standard of care of the warehouser (also called a “storer”). Warehouse receipts are documents issued by the warehouser that serve as proof of the depositor’s ownership of the goods stored in the warehouse. A warehouse receipt confers on the holder (in the case of negotiable receipts) or the named party (in the case of non-negotiable receipts) the right to demand that the goods be released. The provincial warehouse receipt legislation (other than in British Columbia) deems the warehouse receipt to be a contract between the warehouser and depositor, but provides a mechanism for the depositor to contest the terms of the receipt within 20 days of its issuance.

The provincial warehouse receipt legislation also imposes on warehousers the common law standard of care that applies to a bailee for reward and establishes that a warehouser may not contract out of this minimum standard.  However, provincial warehouse receipt legislation does not restrict a warehouser from limiting its liability for a breach of this standard of care (e.g., a per-pound cap) under the terms of the warehouse receipt or another contract with the depositor.

Finally, while the common law generally does not recognize a lien right of a warehouser (except where a lien is created by contract), each of the common law provinces has enacted legislation that grants a statutory lien on goods deposited with a warehouser.  Such statutory liens are enforceable by a right of sale, but are limited in scope in that a lien on goods that are presently in the warehouser’s possession does not include outstanding charges with respect to goods that are no longer in the warehouser’s possession.

The Contract of Deposit under Quebec Civil Law

In Quebec, the contract of deposit (contrat de dépôt) is one of the named contracts set out in the Civil Code of Québec. This contract arises when a person, the depositor (déposant), remits movable property to another person, the depositary (dépositaire), who undertakes to keep custody of it for a certain time before returning it to the depositary. The physical transfer of the goods to be deposited is essential to the formation of the contract. Consequently, for the formation of the deposit contract there must be i) movable property, ii) delivery of the property, iii) the obligation of storage and iv) the obligation of restitution of the property. Where these elements are demonstrated, the parties’ consent may be tacit.

Unless the contract provides for contract by “onerous title,” i.e. with payment by the depositor, the deposit is by “gratuitous title,” i.e. voluntary deposit. Depending on the nature of the contract, the depositary will not be held to the same standard of care. In the case of gratuitous title, the depositary has an “obligation of means” and is responsible for loss where such loss is caused by the fault of the depositary, proof of which falls to the depositor. This is similar to the standard of care of a bailee for reward under the common law.  Where the depositor proves that payment was made, thus creating a contract of deposit by onerous title, then the depositary is held to an “obligation of results.” In such a case, the burden of proof shifts and the depositary is liable for any loss of the property except in case of force majeure. Quebec warehousers may limit their liability by contract, both with respect to the applicable standard of care and by imposing a liability cap.

In all cases, the depositor is bound to reimburse the depositary for any expenses incurred for the preservation of the property, to indemnify the depositary for any loss the property may have caused during the deposit, and to pay the agreed remuneration. Where the depositary does not receive payment, it is entitled to retain the deposited property until such payment is made. This right of retention on movable property allows for a prior claim pursuant to the Civil Code of Québec. As is the case for the warehouser’s lien in common law provinces, this right of retention is limited to the charges owed in respect of the goods in the depositary’s possession.

Conclusions

Although warehousing operations are similar across Canada, there are some significant differences between the legal regimes applicable in Quebec and in the common law provinces. While bailment is a common law notion that does not always rely on a contract, the civil law dépôt always constitutes a contract, albeit an implicit one in some cases. While most common law provinces have a statutory regime for warehousing receipts, there is no such regime in Québec and general contractual law applies. Warehousers operating in Quebec may be subject to a higher standard of care than those in common law provinces, however warehousers operating in Quebec have more flexibility to vary such standard of care through contract. The common law provinces have created  statutory warehouser’s liens that include rights of sale, whereas the Civil Code grants the warehouser the right to retain the goods until complete payment. Companies engaged in or dealing with warehousing in Canada should be aware of these differences between the two Canadian legal systems.

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